Archive for the ‘Capitalism’ Category

“Mexico has mismanaged its oil to the detriment of us all, said José Luis Luege. Ever since the government proposed opening the oil sector to foreign partners, leftists have been marshaling “pseudo-nationalist arguments” that equate letting foreign oil companies develop Mexican oil fields with stiffing our own citizens. They have it exactly backward. Besides North Korea, Mexico is the only country in the world that doesn’t allow foreign commercial partners in the oil industry—even communist Cuba does. That’s because the industry poses investment risks that only private companies can take. Pure nationalization of our oil hasn’t worked: At the turn of the 20th century, Mexico was a top oil producer, behind only the U.S. and Russia. But since the state nationalized production under Pemex in the 1930s, our oil industry has been “bankrupt and inefficient,” as “terrible corruption” has siphoned off funds that should go to exploration and infrastructure. Pemex has been systematically “looted by a bloated union structure” and corrupt officials, who together have “defrauded the nation.” Only by amending the constitution to allow companies besides Pemex to invest in our oil fields will we be able to reap real profits “for all Mexicans.”” — Via The Week

The death of Steve Jobs is a useful reminder of the fact that much wealth is not winner-take-all but winner makes everybody better off. Steve Jobs’s estate is estimated to be something between $6 billion and $7 billion. About 2/3 of that is Disney stock he received when Disney acquired Pixar. The rest if Apple stock. This is clearly a fraction, maybe a small fraction of the wealth Jobs created for the rest of us.Yes, he made a lot of money. But he made it by making the rest of us better off. He didn’t take it from us. He shared it with us.

One reason that the top 1% only earned 8% of the income in the 1960′s vs. 20% now is that our economy has changed in ways that are good for all of us. I pause here to mention the obvious–the bottom 99% can be better off with a smaller share of the pie if the pie is getting sufficiently bigger which is what has happened over the last 50 years. But the top 1% gets a bigger share not because they are hoarding more of the pie. The top 1% gets a bigger share because the opportunity to create a lot of wealth for everyone has changed.

Think of it this way. The IBM Selectric was a wonderful improvement in the typewriter market. The people who created it and ran IBM made a lot of money from that improvement. And that’s nice. But improving the personal computer makes you a lot richer now than it did then. It creates more wealth. So the most creative people in technology today (Brin, Jobs, Page, Gates, Zuckerberg) make a lot more money than they did in 1960. That’s good.

“Save for the one transcontinental line that received virtually no subsidies (J.J. Hill’s Great Northern), the building and operation of the other three lines were contaminated with graft, fraud, and corruption – of which the Credit Mobilier scandal is only the most famous instance. And on top of these shenanigans that predictably happen when government doles out subsidies were other, equally predictable results: shoddy construction, bloated costs, and inefficient and unsafe operation of the lines.” — Donald J. Boudreaux, professor of economics

Lefties often label the era from the late 1970’s to today as the era of deregulation where wages stagnated, income inequality increased, and overall the rich got richer at the expense of the poor. They argue that we should go back to the economic era from roughly the end of WWII, to the late 1970’s. That was an era of unprecedented economic growth, rise in wages, and reduced inequality.

Now, there are various answers that could be given to such claims (see here, here, here and here for a few) but my favorite is to look at the ‘deregulation era’ from the eyes of poor people around the world. If your concern is the worlds truly poor – those living in absolute poverty – the ‘deregulation era’ is an absolute god sent.

Take Hans Rosling, who gave a Ted Talk on this very thing – showing how our preconceived notions of poor countries are extremely outdated, see here. He shows that many countries, especially in Asia, but also Latin America and Africa, that have been poor for so long are now quickly moving up the economic ladder. But this was in 2007, the leftist replies, surely it’s outdated, no?

But then a couple of prominent economists noticed the same thing. MIT’s Maxim Pinkovskiy and Columbia’s Xavier Sala-i-Martin published a paper showing:

The conventional wisdom that Africa is not reducing poverty is wrong. Using the methodology of Pinkovskiy and Sala-i-Martin (2009), we estimate income distributions, poverty rates, and inequality and welfare indices for African countries for the period 1970-2006. We show that: (1) African poverty is falling and is falling rapidly; (2) if present trends continue, the poverty Millennium Development Goal of halving the proportion of people with incomes less than one dollar a day will be achieved on time; (3) the growth spurt that began in 1995 decreased African income inequality instead of increasing it; (4) African poverty reduction is remarkably general: it cannot be explained by a large country, or even by a single set of countries possessing some beneficial geographical or historical characteristic. All classes of countries, including those with disadvantageous geography and history, experience reductions in poverty. In particular, poverty fell for both landlocked as well as coastal countries; for mineral-rich as well as mineral-poor countries; for countries with favorable or with unfavorable agriculture; for countries regardless of colonial origin; and for countries with below- or above-median slave exports per capita during the African slave trade.

The authors explain their findings here. The New Republic as well as Blue Matter blog comment here and here.

Just over 25% of the world’s population (1.4B people), lived in extreme poverty in 2005, according to a report released this month from the World Bank (”Global Economic Prospects 2009: Long-term prospects and poverty forecasts“). This has fallen from 42% in 1990, when the bank first published its global poverty estimates. All regions of the world have seen gains. Rapid economic growth east Asia in particular has led to a dramatic decline in global poverty. In China the share of the population getting by on $1.25 a day, or less, fell from 60% to 16%.

Amidst all these problems in the United States, it’s worth recalling that for much of the world these are actually the best of times…

American politics is, naturally, going to remain focused primarily on the problems of Americans. But ultimately the problems of poor people in the developing world are much more severe than any of our problems, and growth in poor countries is extremely good news.

In the 1990s, “people could only feed themselves, and some even starved. Children could not afford to go to school, and many could not even finish primary school,” said Liu Jiandang, a 41-year-old former farmer. “Now, we’ve got paved roads, new houses, phones and vehicles. I run a hotel that can host 20 to 30 tourists and some rooms have TV sets, air conditioners, hot water and bathrooms.”

With her profits topping 50,000 yuan ($7,000) a year, Liu can afford to send her 19-year-old son to vocational college and her 10-year-old daughter to primary school. “Our lives are so much better than before,” she said.

Okay – you say, but surely the financial crisis has reversed most of these trends, right? The answer is no. According to Dani Rodrik, professor at Harvard Universities International Development program, writes:

For the first time ever, developing countries as a group grew have been growing faster than industrial countries. Not only that, as the figure makes clear, the growth differential between the two groups has been widening in favor of the poor countries.

And it isn’t just China, India, and a few countries that have been doing well. For a change, Africa and Latin America actually experienced some convergence with rich countries over the last decade.

Many analysts have projected these trends forward and predict rapid global growth, largely off the back of emerging and developing nations. In the words of a Citigroup report, “this time will be different.”

He provides this eye opening graph:

Notice the dramatic turnaround, starting around the 1980’s and moving upwards quickly thereafter. This is all GREAT news from a developing countries perspective and it seems like the great recession hasn’t slowed it down!

What would the future look like if this trend is to continue? Tim Taylor gives the numbers:

To get a sense of the change, compare the rank order of the economies of the world in 2009 and 2050. In 2009, the U.S. is the world’s largest economy. By 2050, U.S. economy will be about 2.5 times as large–and is projected to be in third place in absolute size, behind China andIndia. What other countries move up the rankings notably by 2050? Brazil, Mexico, Indonesia, Turkey, Nigeria, and Vietnam. To my 20th century mindset, some of those countries just don’t seem like global economic heavyweights. Time to start adjusting my mind to the coming realities.

A broad range of economic figures suggest that emerging markets are catching up to developed markets. As the Great Recession fades, this trend is likely to continue. The emerging-market history of low growth and high volatility is fading, while developed markets are experiencing more instability and financial impairments. Emerging markets have decreased their debt-to-GDP ratios, even as developed markets, including the United States and some in Europe, are letting theirs rise. In a sign of convergence between emerging and developed markets, health and schooling levels in emerging-market countries are now comparable to those seen in developed markets around 1975, with the gap continuing to narrow. And average levels of political and economic freedom in emerging markets have also improved dramatically in the last two decades. Although emerging markets have not yet achieved parity with developed markets…they now appear more stable and better positioned to enjoy sustained growth than they did a generation ago.

To my mind, the trends Alan Taylor identifies are the start of the big development story of the 21st century. After a century in which the global political economy was primarily characterized by the yawning gap in wealth and power between the so-called First and Third Worlds, that gap is finally narrowing. Economic growth is accelerating in countries long mired in a “poverty trap,” and the economic and political benefits of that trend are extending to more and more of the world’s human population. Hundreds of millions of people still live in abject poverty, under authoritarian rule, or both, but the share of the global population living in deep poverty is notably lower than it was just a couple of decades ago, and the economic takeoffs occurring in many long-poor countries suggest that trend is only broadening.

The greatest surprise, however, is the one taking place in Sub-Saharan Africa. Between 1980 and 2005, the region’s poverty rate had consistently hovered above 50 percent. Given the continent’s high population growth, its number of poor rose steadily. The current period is different. For the first time, Sub-Saharan Africa’s poverty rate has fallen below 50 percent. The total number of poor people in the region is falling too.

If you consider all humans of equal value, regardless of race or nationality, the ‘deregulation era’ has to be considered a great era and a positive change over previous periods of human history – and this is true, even assuming the worst case assumptions of the liberals and lefties of the world.

Over the last 2010 years, 55% of total economic output happened in the 20th century, and an additional 23% of the total in just the first 10 years of the 21st century.About 28% of the total years of human life lived in the last 2010 years happened during the 20th century, and about 6% of total years of human life lived in the last 2010 years happened in the first 10 years of the 21st century.

Wages are going up even without the government’s prodding. The development of China’s west has turned interior cities such as Chongqing into production centers that compete for labor with coastal factories. The pay of the migrant laborers who fuel China’s export industry rose by 40 percent in 2010, according to Credit Suisse’s Tao. It will continue climbing 20 percent to 30 percent in each of the next three years as Chinese leaders pump up domestic demand.

Workers are getting picky. A recent pay hike of more than 10 percent in a Shenzhen bra factory wasn’t enough to keep some workers in town. Luo Chenen, a 33-year-old migrant worker who sews bras for Hong Kong-listed Top Form International, says “quite a few” of her colleagues left after the lunar new year for their hometowns. They won’t come back because “there are jobs there as well. Right now is not like in the past, when finding a job was difficult.” As proof of employers’ desperation, the district of Shenzhen where Luo works is plastered with recruitment notices, some promising “High Pay for Urgent Hire.”

…

It’s not just in China’s big cities where wages are rising fast. In the countryside, where small factories are popping up, per capita net income jumped 10.9 percent in 2010, to 5,919 yuan, according to a National Bureau of Statistics of China report in January. “Rural migrant workers’ wages are now rising faster than ever before, and we can probably talk about a wage explosion here,” Jonathan Anderson, chief economist for emerging markets at UBS (UBS) in Hong Kong, wrote on Feb. 3.

If you were Bill Gates and had ten billion dollars to spend to solve poverty, what would you do? David Henderson, an economist at the Naval Postgraduate School, posed precisely that question to various economists at his school and those of us that read his blog. This is what I wrote:

I’ve actually been thinking about this a lot lately. What is the best form of charity? Clearly, just giving a bum on the streets money is a waste. He’ll probably just spend it on alcohol and is he really reformable? Clearly you want the money to go to something that is an investment – that grows, like paying for a poor persons college. Not only do you give them money, but its money that actually solves their problems – long term. But even that has its flaws. After all, they are living in the United States – our “poor”, are richer than 90% of the world.
So then the answer has to do with the worlds poor – not USA’s poor. India, Africa, China, places like that. But you dont want to just give it away either – it robs them of the dignity that comes with “earning”. One thing that I thought about is that when you visit poor countries, and someone offers you a service – say wash your windows, or clean your tires – you tip BIG. Not only are you hitting the target group, but you are rewarding them for a service, and having people participate in the economy makes us all better.

But now were at three qualities of efficient charity: a) targets the clearly truly poor, b) an investment that grows and solves their poverty long term and c) one that gives dividends to the rest of us.

As contrarian as it sounds, I am convinced that the best form of charity is giving jobs and education to the worlds poorest countries – like China’s new growth and capitalist turn. As Tyler Cowen mentioned in his book Economic Stagnation, you get alot of immediate growth and return when a poor population is brought into the world economy – through education, jobs and industrialization. China is at the same stage that the United States was say 100 years ago. And we can expect the same returns – as more and more people are given the opportunity to advance through higher education and innovation. Not only does this make the poorest people better off, but the rest of the world gets alot of the dividends (think of all the added medical innovations, technological innovations, and general increase in standard of living we will experience because of China’s 1 billion+ citizens increased standard of living).

So in the end: what would I do? Probably spend it on whatever makes businesses MORE likely to invest in China, India and other poor countries that bring them further into the economic fold and pull them and their people out of poverty. Maybe invite Intel to open up a training center and design center in a growing country – if the decision ends up losing money, you promise to refund them their losses. If not, you entice another company.

Something like a company insurance policy with the goal of targeting especially poor countries. That is what I would do.

“I believe that greater concentration of power in the hands of government experts is wrong for two reasons. First, other things equal, it diminishes the liberty and dignity of the typical individual. Second, I believe that experts systematically over-estimate the value of what they know and under-estimate the value of what they do not know.” — Arnold Kling

“All of this hints at the problems that plague many of the studies Ezra and others have been citing, showing marvelous results from insurance: as I said in the beginning, uninsured are not like the rest of us. Do I think that my risks would shoot up to match those found by the studies Ezra likes? No I do not, and I doubt that Ezra would try to argue otherwise. I have immense resources at my disposal, most of them non-monetary. There are many ways in which I would like to even out those differences, but privilege cannot be transferred into someone else’s checking account. Indeed, as libertarians are fond of pointing out, government systems can frequently end up catering to privilege even more than the private sector; check out which post codes in Britain or Canada get the best medical services, or check out the massive disparities between the educations received by the poor children in New York City public schools, and the educations received by the middle class kids whose parents lightheartedly imagine that by siphoning an excess share of the system’s resources into their little darlings, they are somehow supporting the cause of educational equality.” — Megan McArdle, responding to Ezra Klein on the studies citing the benefits of health insurance

“Scientists now think that King Tut may have died of malaria….this is a good excuse to meditate on just how rich we are. King Tut was probably the wealthiest man in the world during his time. He died of something that wouldn’t kill the most abjectly immiserated welfare mother in the United States today, because of a combination of public health efforts, and cheap antimalarial drugs. You always need to factor in things like this when you talk about changes in living standards over time. All the positive changes in society mean that the absolute difference between the income of Bill Gates and the man who valets his car is larger than it has ever been in history. But the actual difference in comfort between the two of them is probably much smaller than the difference between JP Morgan and his stableboy. And both Gates and the valet are almost immeasurably better off than their predecessors.” — Megan McArdle

A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance (i.e., a major medical policy with a high deductible). Second, it would end tax exemption of employer-provided medical care. And, third, it would remove the restrictive regulations that are now imposed on medical insurance—hard to justify with universal catastrophic insurance.

This reform would solve the problem of the currently medically uninsured, eliminate most of the bureaucratic structure, free medical practitioners from an increasingly heavy burden of paperwork and regulation, and lead many employers and employees to convert employer-provided medical care into a higher cash wage. The taxpayer would save money because total government costs would plummet. The family would be relieved of one of its major concerns—the possibility of being impoverished by a major medical catastrophe—and most could readily finance the remaining medical costs. Families would once again have an incentive to monitor the providers of medical care and to establish the kind of personal relations with them that were once customary. The demonstrated efficiency of private enterprise would have a chance to improve the quality and lower the cost of medical care. The first question asked of a patient entering a hospital might once again become “What’s wrong?” not “What’s your insurance?”

Now this is healthcare reform I could support. The full article can be found here.

One of the major problems I have with Chicano Studies is its overemphasis on altruistic ventures as opposed to “personal gain”. Becoming a community organizer, for example, is more encouraged than becoming an engineer. This was particularly important to me last year when my sister, being in her junior year of high school, was applying to colleges. Though she had already decided on engineering as her intended major, she was having doubts and was considering a profession that “makes a difference”.

I explained to her that engineering can also be used to make a difference, the two are not mutually exclusive. I also said that when you compare engineering to the highly inefficient means of “making a difference” common among chicano studies students, like community organization, one can make a very strong argument that engineering makes more of a difference – and in the process, you can make a good living doing it. She didn’t seem convinced and I could tell that I needed to explain my point better. Unable to do so at the time I resorted to reminding her that there is a field in engineering that may allow her to design better prosthesis, and being that my dad lost his leg from the knee down in a work accident, she could possibly make his life and people like him better.

That satisfied her but I still thought I needed a better way to explain my point. The blog post I did later on the topic, titled “In Praise Of Personal Interest” did a better job, I wrote:

…if charity is your goal, with extra money [you would make by being an engineer] you can provide valuable resources, fund efficient charities, be a stronger role model to the next generation (three people in my family want to be engineers now, just because of my experience), provide a better future for your children, assist your family out, or, just as importantly, be a testament to those around you that hard work and dedication pay off, that there is a way out of the ghetto.

Lastly, unlike nonprofits, even if altruism is not your goal, capitalism works in such a way that when pursuing personal interest “you are led, as if by an invisible hand, to do things that improve the lives of others”.

Still though, I felt like I could have explained myself better. My point does not come across as clearly as I’d like it to. Well to my surprise, while riding my bicycle to work yesterday, I was listening to a bloggingheads podcast with Philosopher Peter Singer and economist Tyler Cowen about alleviating poverty when Cowen asks Peter Singer a question that I would have asked him if I was doing the podcast, namely: what advice would you give to an 18 year old in college who has read Peter Singers book, is convinced that making a difference matters, and is considering a career as an engineer in the cell phone industry because she sees what a difference cell phones are making to the poor in Africa? Would that career choice, from an altruistic perspective, make more of a difference than, say, a person who makes 40k/year and gives 15% to the poor in India? What if the engineer never gives a dime to charity?

What answer do you think Peter Singer gave? Click below to see the exchange (full video, which is highly recommended, can be found here). It is a good answer, and in the end, it moves me a step closer to finally explaining my point better. Maybe I should forward this to my sister?

Mr. Prasad was born into the Pasi community, once considered untouchable on the ancient Hindu caste order. Today, a chain-smoking, irrepressible didact, he is the rare outcaste columnist in the English language press and a professional provocateur. His latest crusade is to argue that India’s economic liberalization is about to do the unthinkable: destroy the caste system. The last 17 years of new capitalism have already allowed his people, or Dalits, as they call themselves, to “escape hunger and humiliation,” he says, if not residual prejudice.

There are about 200 million Dalits, or members of the Scheduled Castes, as they are known officially, in India. They remain socially scorned in city and country, and they are over-represented among India’s uneducated, malnourished and poor.

…

The survey, financed by the Center for the Advanced Study of India at the University of Pennsylvania, finds that Dalits are far less likely to be engaged in their traditional caste occupations — for instance, the skinning of animals, considered ritually unclean — than they used to be and more likely to enjoy social perks once denied them. In rural Azamgarh District, for instance, nearly all Dalit households said their bridegrooms now rode in cars to their weddings, compared with 27 percent in 1990. In the past, Dalits would not have been allowed to ride even horses to meet their brides; that was considered an upper-caste privilege.

Mr. Prasad credits the changes to a booming economy. “It has pulled them out of the acute poverty they were in and the day-to-day humiliation of working for a landlord,” he said.

“Saying that “greed” caused today’s problems is like saying that gravity caused the death of someone pushed from the top floor of the Empire State building. Some things are sufficiently constant in human affairs – and self-interest, even greed, is among them – that they explain nothing. “Greed” certainly can be unleashed to do harm, but it can also be harnessed to do good. Any compelling explanation of any observed economic reality must take “greed” as a given while identifying the specific incentives provided by prevailing social institutions. If these institutions make serving the needs of others the best path to personal gain, then “greed” is harnessed for human betterment. But if these institutions make predating on others – either through force or fraud, or either intentionally or unintentionally – the best path to personal gain, then “greed” will indeed lead people to act destructively. In either case, though, it is the institutions and their accompanying incentives, rather than “greed,” that explain economic reality. ” —Donald J. Boudreaux, professor of economics at George Mason University